The Continued Struggle with Car Production and High Prices
Companies like Toyota, the world's largest vehicle manufacturer, announced in September that they'd be shutting down 14 Japanese factories due to the impact of the Coronavirus pandemic on suppliers. This move would cause a 40% decrease in production in those facilities. Moreover, Toyota's factories globally would also be closing, with North American production likely to decrease by 40-60%. Volkswagen, the second-largest auto manufacturer, hinted at potential production cuts due to ongoing issues with semiconductors in Malaysia.
Auto manufacturers like General Motors, Ford, Stellantis, Tesla, and Nikola have also been grappling with the issue of semiconductor shortages, citing the need for parts to build their electric trucks before the end of the year. The automotive industry worldwide witnessed a significant decrease in production during the second quarter due to these shortages. However, many manufacturers anticipate the chip shortage will ease in the second half of the year, allowing them to catch up with production.
Despite the projected decrease in chip shortages, ongoing supply chain disruptions continue to affect the industry and maintain high car prices. According to Kristin Dziczek, Senior Vice President for Research at the Center for Automotive Research, there are multiple points of bottlenecks in the supply chain which hinder the full resumption of production. These disruptions could stem from various factors, including the chip shortage, delays in parts delivery, or congestion at ports.
As a result of these ongoing challenges, customers are facing limited options at dealerships with record-breaking prices for both new and used vehicles. Production stoppages are only contributing to these high prices, further impacting consumers. The semiconductor shortage has affected numerous industries, including the production of smartphones, computers, and gaming consoles. As a consequence, chip suppliers are prioritizing their production to meet this additional demand.
In conclusion, the automotive industry is still in a challenging period, faced with ongoing supply chain disruptions nevertheless. The semiconductor shortage, inventory limitations, and increased costs from tariffs and trade disputes have perpetuated high car prices, making it difficult for both new and used vehicle markets. As manufacturers look for alternatives to secure chip supplies, the industry hopes to stabilize and begin fully resuming production.
Additionally, about 20-40% production rate slashes by manufacturers in 2021-2022 resulted in a production shortfall of 3.9 million fewer new vehicles. This shortage led to fewer new cars available, affecting both new and used vehicle markets. The chip shortage also changed into a catalyst for price stability in the used car market, resulting in relatively high prices due to restricted inventory flow and extended waiting times for new car deliveries. The automotive supply chain remains complex, facing many hurdles, regional disparities, and persistent challenges. Trade disputes and tariffs also add to the complexity, with the US facing potentially higher vehicle production costs from tariffs on Canada and Mexico. The nearshoring trend emerged as a response to these challenges, with automakers shifting manufacturing operations closer to markets to reduce reliance on distant suppliers.
